Starbucks, Tatas sign JV to set up cafes

First cafe by August and 50 by year-end initial investment will be Rs 400 cr

The world’s biggest coffee chain is finally in India. A year after Seattle-headquartered Starbucks Coffee Company entered into an agreement with Tata Coffee Ltd to source and roast coffee arabica beans in India, it has formed a joint venture (JV) with Tata Global Beverages (TGB), the parent of Tata Coffee, to roll out its cafes nationwide.

As part of the agreement signed today, the two companies will form an equal JV, Tata Starbucks Ltd. The venture will have a separate management team and a board of six members, with equal representation from both partners. A new chief executive and a chief financial officer will also be shortlisted. Though the name of Noel Tata is being speculated upon to head the alliance, Tata and Starbucks’ senior management did not reveal the identities.

Starbucks will be the first foreign retailer to enter India after the government loosened rules about how single-brand companies can invest here. But despite the relaxed norms, Starbucks has decided not to go solo.(Click here for graphs)

CAFÉ MARKET TRENDS

* The Indian youth is increasingly looking for ways to spend fun time with friends. Coffee shops feature high on list

* Due to their relaxed unintimidating atmosphere

* Brand emphasis on having a good time

* Widespread presence in metros and penetration into mini metros. 

* Pocket friendly outing especially for youth

“We are seeing a revolution in lifestyles. More and more people are moving up the aspirational value chain… Ever since we exited our minority investment in Barista, we have been looking at re-entering the space. This JV is in line with TGB’s strategy of inorganic growth through strategic alliances. This JV opens up new opportunities and formats for TGB. This business is just the tip of a much bigger business,” said R K Krishnakumar, TGB’s vice-chairman.

Tata Starbucks is looking at opening 50 stores by the end of the year, starting with New Delhi and Mumbai over the next seven-eight months. It will also expand into other cities and Tier-II towns. The initial investment will be Rs 400 crore ($80 million).

“We will move quickly. It is all about being accessible to customers. We will be priced as a premium experience. We have not established pricing for the market. It will evolve over time. We feel the experiences will live up to the pricing we have for our products and that it will be competitive in the market,” said John Culver, president, Starbucks Coffee China and Asia Pacific.

In a first of its kind branding initiative, Starbucks outlets in India would be branded as “Starbucks Coffee: A Tata Alliance,” Culver said.

The formats, too, will vary, as the venture expands operations, tapping into shopping malls, hotels, offices, airport lounges, railway stations, colleges and other public spaces.

Leveraging the existing Tata eco system of Taj hotels and retail outlets will be an obvious option, though the first store is likely to be a standalone one. “Whilst we will encourage the Tata group companies to support the JV, we will have an arm’s length relationship with them since they are listed entities,” Krishnakumar said. TGB products like Himalayan bottled natural mineral water will also get a global rub-off, as these will be retailed across the country and even, internationally by Starbucks.

Both Krishnakumar and Culver said the scope of the JV would be extended in the future, depending on opportunities at hand. “For instance, besides coffee, Starbucks is also into food services. We will look at a partnership with TajSats, an air-flight catering service promoted by the Tata Group,” said Krishnakumar.

Customised beverages and food for the Indian palette too will be integral. So would be the now famous loyalty programmes, which have been huge hits in emerging markets like China, where there are already 250,000 such card holders.

Moreover, the state-of-the-art roastery for which Starbucks had signed a memorandum of understanding with Tata Coffee last year, would be commissioned shortly in the south of India, Krishnakumar added.